BFI launches producer-distributor JV scheme

The BFI is rolling out a new initiative to stimulate investment in British independent films, which will see BFI-backed UK producers split minimum guarantees and revenues with UK distributors.

The BFI will initially launch a six-project pilot test of the optional scheme in order to gauge interest and viability.

Under the terms of the new agreement, a producer would invest part of a Lottery production award from the Film Fund as its contribution of up to 50% of the UK distribution minimum guarantee for the film in question.

In return for sharing the distribution risk, the distributor would allow a 50% share [providing producer investment had been 50%] of its net revenues to be held in a Locked Box by the BFI for re-investment by the producer in their future productions.

From the date that distributor’s gross receipts are first received and throughout the recoupment period a ‘Distributor Base Fee’ of 15% will be kept by the distributor as a contribution towards its overhead for distributing the film. 

Once all distribution costs and both MG contributions have been recouped, the fee will cease to be payable.  From that point on the full fee specified in the relevant distribution agreement will be shared between the distributor and the producer on an on-going 50/50 basis (or other agreed percentage) with any on-going costs deducted “off the top” first.

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According to BFI executives Screen spoke to, the initiative has the support of producers trade association PACT and broad support from members of IFDA (Independent Film Distributors’ Association).

Discussions are still on-going between Pact, Directors UK (DUK) and the Writers’ Guild of Great Britain (WGGB) as to the minimum shares of recouped revenues for directors and writers. However, Directors UK and Pact’s film policy group chair Marc Samuelson both told Screen that an agreement is imminent. 

Studios have not been part of the discussions and Screen understands that at least one or two larger UK indie distributors have expressed reservations about the scheme’s fee structure.

The JV scheme was first proposed two years ago in Lord Chris Smith’s Film Policy Review as a way to incentivize collaboration between distributors and producers.

BFI executives Screen spoke to pointed to the complexity of negotiations and the large number of recommendations in the Film Policy Review as reasons for the two year period between the initial Film Policy Review recommendation and implementation.

Rationale 

The ambition behind the scheme, which is still subject to EC state aid approval, is to produce more financially viable UK films, develop stronger production companies and increase industry collaboration.

In particular, the scheme is aimed at supporting films that have the majority of their pre-sale value out of the UK, and those smaller, more niche films that might struggle to attract a mainstream distributor.

The UK remains a challenging distribution space with both the number of releases and costs rising while the value of new and existing ancillary rights remain uncertain.

While the initiative is by no means an instant industry-wide game-changer, many acknowledge that it is a significant nudge in a better direction that could potentially be transformative for some businesses.

“UK distribution has been in a difficult place in the last few years,” BFI Film Fund director Ben Roberts told Screen. “There haven’t been as many distributors coming on board more challenging films in the early stages, but this could help.

“If this provides a comfort for distributors to invest in some of those riskier projects that we’re investing in then that can only be a good thing,” he continued.

“For a distributor, this aligns our [distributors and producers] imperatives,” said Alex Hamilton, managing director, eOne UK, and IFDA chair. “Sometimes you want producers to be more focused on the outcome of the film and less on asking us to spend more money.”

“This is another way for UK distributors to be able to look at and consider UK films,” he continued. “In the market-place British films often aren’t as competitive as their US counterparts. At times, we’ve preferred to pick up US films because they are less risky – for example, the P&A can be the same for both UK and US films if you’re going to push them out wide.”

SVOD deals

The scheme could also see producers benefit from certain distributors’ SVOD deals: “Producers may well benefit from good SVOD deals and if they did a deal with a studio, in theory, they could benefit from that distributors’ Sky deal,” Hamilton said.

“I think this stands a good chance of working but we won’t really know for a couple of years”, noted Samuelson.

The scheme will also be open to co-productions with a lead UK producer. All productions must pass the BFI cultural test and lead producers must be UK nationals.

The BFI’s Locked Box structure was first recommended in the 2012 Film Policy Review. The organisation operates a number of Locked Box strands, including one for development, which sees 100% of money that is recouped by the BFI from an investment in development, held by the BFI and available to the producer in question for investment in their next films.

For a draft example of the joint venture scheme, visit the BFI website. Below are the full BFI guidelines for the JV scheme, which is now open to applications:

How does the Film Fund JV Scheme operate?

1.1              When applying to the Film Fund for production funding the producer should indicate whether, if it is successful in being awarded a Lottery production award for its film, they would wish to have a portion of such award treated as a JV Scheme award.  Any such JV Scheme award will be made to the producer on the basis that it will be treated as a contribution by the producer towards the overall minimum guarantee (“MG”) provided by the distributor who is acquiring the UK distribution rights in the film, pursuant to a joint venture arrangement to be entered into between the distributor and the producer with regard to the film.

Ordinarily the amount of the JV producer Lottery MG contribution will match the amount of the distributor’s portion of the overall MG but this need not necessarily be the case.  If the split is not 50/50 the recoupment position and fee shares will be adjusted to reflect the exact proportions contributed by each of the JV partners.

1.2              The terms upon which the distributor shall acquire the UK distribution rights from the licensor thereof in a JV Scheme film will be subject to the approval of the BFI.  Such distribution terms shall be arms length and on no more favourable terms to the distributor than distribution terms customarily agreed for non-JV Scheme films.  The distribution terms agreed between the distributor and the licensor(s) for JV Scheme films will include video rights to be distributed by the distributor on a distribution fee basis as opposed to a royalty to the licensor basis.

1.3              From the date that distributor’s Gross Receipts are first received and throughout the period that the initial film theatrical release costs (P&A), video costs and other media distribution costs (“Distribution Costs”) and both the distributor’s MG contribution and the JV producer’s MG contribution are being recouped, a Distributor Base Fee (across all media licensed to the distributor for the film) will be retained by the distributor as a contribution towards its overhead for distributing the film.  At the point at which all such Distribution Costs and both the MG contributions shall have been fully recouped, the Distributor Base Fee will cease to be payable and thereafter the full Distribution Fee(s) (specified in the UK Distribution Agreement for the film) shall be shared between the distributor and the JV producer on an ongoing 50/50 basis (or such other percentage shares as reflect the ratios in which the overall MG is contributed by the distributor and the JV producer) with any ongoing Distribution Costs in respect of the film being first deducted “off the top”.

1.4              The Distributor Base Fee will be 15% in respect of all rights licensed to the distributor for the film (calculated on distributor’s Gross Receipts).

1.5              The Distribution Fee Margin (being the difference between the Distributor Base Fee and the full Distribution Fee(s) specified in the UK Distribution Agreement for the film) will be shared between the distributor and the JV producer on a 50/50 basis (or such other percentage shares as reflect the ratios in which the overall MG is contributed by the distributor and the JV producer) across all media licensed to the distributor for the film.  At the point at which the Distributor Base Fee shall cease to be paid to the distributor, the full Distribution Fee(s) specified in the UK Distribution Agreement for the film shall, on an ongoing basis, be shared between the distributor and the JV producer on a 50/50 basis (or such other split as above).

The JV producer’s share of the Distribution Fee Margin (“the Producer Distribution Fee Margin Share”) will be paid by the distributor into a Locked Box to be held by the BFI.  All revenues held in the Locked Box will be administered by the BFI as referred to in paragraph 1.13 below.   The Producer Distribution Fee Margin Share will be uncapped as regards the JV arrangement.  A Producer Distribution Fee Margin Share shall be shared between the JV producer, the writer and the director of the film (in percentages to be agreed between them) and able to be accessed for their respective future filmmaking activities.  At the point at which the aggregate revenues paid into the Locked Box on a film from any and all sources (including BFI recycled Development funding and/or BFI Producer Corridor and/or BFI Supplemental Producer Corridor and/or Producer Distribution Fee Margin Share and/or JV MG Contribution and/or Producer Equity Entitlement) shall equal the sum of £1,000,000, any ongoing Producer Distribution Fee Margin Share payable into the Locked Box in respect of such film will be shared 62.5% between the JV producer, the writer and the director and 37.5% to the BFI.  Any such sums received by the BFI by way of a share of the Producer Distribution Fee Margin Share will be applied by the BFI in the first instance against recoupment of the Film Fund production award for such film.

1.6              At the point at which the distributor’s and the producer’s MG contributions start to be recouped, they will recoup on a 50/50 pari passu basis (or such other percentage shares as reflect the ratios in which the overall MG is contributed by the distributor and the producer).  Revenues applied against recoupment of the producer MG contribution will be paid into a Locked Box to be held by the BFI.  All revenues held in the Locked Box will be administered by the BFI as referred to in paragraph 1.13 below.

1.7              As regards the JV arrangement there will be no interest levied on or recouped by the distributor on the Distribution Costs or the MG contributions.

1.8              In respect of each JV Scheme film there will be 2 separate accountings as follows:-

(i)                 Accounting from the distributor to the film’s licensor (and thus also to financiers) based on the contractual terms set out in the UK Distribution Agreement for the film.

(ii)               Accounting from the distributor to the JV producer based on the pre-agreed JV terms.

Illustrative examples of these 2 types of accountings are set out in the next section below.

1.9              The point(s) at which the recoupment revenues to be applied against the producer’s MG contribution and the Producer Distribution Fee Margin Share are to be paid into the Locked Box will be determined by reference to the status of recoupment of the Distribution Costs at any given point under the terms of the JV arrangement.

The JV accounting between the distributor and the JV producer in respect of the JV Scheme film will operate on the following basis:-

(i)                 Until recoupment of the initial Distribution Costs.

All Distributor Gross Receipts shall be applied as follows:-

(a)   First to the distributor in payment of the Distributor Base Fee (at the applicable rate); and thereafter

(b)   The balance thereof shall be applied against recoupment of the Distribution Costs.

(ii)               Following recoupment of the initial Distribution Costs and until recoupment of the MG contributions.

All further Distributor Gross Receipts shall be applied as follows:-

(a)  First to the distributor in payment of the Distributor Base Fee (at the applicable rate); and thereafter

(b) The balance thereof shall be applied against recoupment of ongoing Distribution Costs (if any); and thereafter

(c)    On a 50/50 basis (or other split as above) towards recoupment of the distributor MG contribution and the producer MG contribution.  Revenues applied against recoupment of the producer MG contribution will be paid into the Locked Box.

(iii)             Following recoupment of the MG contributions.

All further Distributor Gross Receipts shall be applied on a 50/50 basis (or other split as above) towards payment of the Distributor Fee Margin.  Such Distribution Fee Margin shall be paid out as follows:

(a)   First, payment of the Distribution Fee Margin (being the difference between the Distributor Base Fee and the full Distribution Fee(s) specified in the UK Distribution Agreement for the film) shall be made, calculated on a retrospective basis from day one until the point at which the MG contributions shall be recouped in full, to each of the distributor and the JV producer on an equal 50/50 basis; and

(b)   Thereafter, payment of the Distribution Fee Margin (being the amount of the full Distribution Fee(s) specified in the UK Distribution Agreement for the film) shall be made, calculated on an ongoing basis from the point at which the MG contributions shall have been recouped in full, to each of the distributor and the JV producer on an equal 50/50 basis.

All revenues applied by way of the Producer Distribution Fee Margin Share under sub-paragraphs (a) and (b) above will be paid into the Locked Box.

1.10          No box office awards or bonuses will be payable by the distributor in respect of a JV film without the approval of both the distributor and the JV producer.

1.11          If under the UK Distribution Agreement the distributor acquires any territory or territories in addition to the UK and Eire territory, the distributor and the JV producer will agree in good faith a fair and reasonable allocation of the Distributor MG which shall relate to the UK and Eire territory and the JV arrangements, subject also to BFI approval.

1.12          All other terms set out in the UK Distribution Agreement, i.e. a Term Territory, cross-collaterisation, etc., will apply to the operation of the JV arrangement between the distributor and the JV producer.

1.13          Locked Box

(i)                 All revenues paid into a Locked Box shall be held by the BFI and administered in accordance with the terms of a Producer Entitlement Agreement to be entered into between the BFI and the JV producer and the writer and director of the film in question.  There are restrictions on how and when the Locked Box revenues can be accessed and these are set out in the Producer Entitlement Agreement.

(ii)        The aggregate amounts of the Locked Box revenues (excluding the Producer Distribution Fee Margin Share) which are available to be accessed by the producer, writer and director shall in no event exceed the amount of the BFI Producer Corridor percentage (i.e. a blended rate of 37.5%), which would have been available to the producer of the film had the BFI Lottery production award for the film in question been made to a non-JV Scheme film.

(iii)             At the point at which the producer is awarded a Film Fund production award for a JV film the producer shall elect whether it wishes any BFI Producer Corridor entitlement thereon to be payable from either (a) revenues received against recoupment of the JV MG contribution (subject always to the 37.5% blended corridor rate); or (b) revenues received against recoupment of the equity contribution of the Film Fund production award (subject always to the 37.5% blended corridor rate).  Notwithstanding the above, as an accommodation in order to help promote interest in the JV Scheme, the BFI will agree for the duration of the JV Scheme pilot period that, in the event that the producer elects to have its BFI Producer Corridor entitlement to be paid from revenues received against recoupment of the JV MG contribution, then 100% of such recoupment revenues (up to the full amount of the overall  37.5% blended corridor rate calculated on the entire Film Fund production award made for such film) may be retained in the Locked Box to be shared between the JV producer, the writer and the director in percentages to be agreed between them.

(iv)              The Locked Box revenues derived from a JV Scheme film shall be shared between the producer, the writer and the director of such film in percentages to be agreed between such parties and in accordance with an overall revenue sharing agreement to be entered into between PACT, the Writers’ Guild of Great Britain and Directors UK.

(v)        The Locked Box revenues will be available to each of the producer, writer and director only to spend on their respective future filmmaking activities.  It should be noted that all shares of Locked Box revenues (with the exception of the Producer Distribution Fee Margin Share) paid to the producer, writer and director are repayable to the BFI from such parties’ future entitlement to revenues derived from the film in question.

1.14     State Aid

It should be noted that the BFI’s introduction and operation of the JV Scheme is subject to the BFI obtaining the requisite State Aid approvals from the European Commission.

1.15     Pilot Period

The financial terms and conditions in respect of the JV Scheme as set out herein shall apply for the duration of the BFI JV Scheme Pilot Period and shall be reviewed by BFI, Pact and IFDA thereafter.